US Senate at finish line for reform bill

SENATORS looked set to make one final push and conclude the year-long debate over financial reform last night.

As City A.M. went to press, last-minute proposals were being rushed into the bill to impose new rules on US banks after the financial crisis.

Banks would face stricter limits on risky trading and investing, but could make small investments in private equity and hedge funds under a modified “Volcker rule”.

In a victory for financial institutions that had pushed for a fund-investing loophole in the bill, the head of the Senate’s negotiating team on a panel writing landmark Wall Street reform legislation proposed changes to the controversial rule.

Democratic Senator Christopher Dodd proposed that up to three per cent of a bank’s tangible common equity could be invested in such funds, but that a bank’s investment in any one fund could not exceed three per cent of the fund’s total ownership interest.

Banks would have some time to sell off stakes in private equity and hedge funds that exceed the new caps, he said.

Some of Wall Street’s largest financial institutions, such as Goldman Sachs, JPMorgan Chase, Credit Suisse and Citigroup have been deeply involved in private equity deals and could face changes, analysts said.

The House team on the panel must react to Dodd’s proposal.

Dodd further proposed toughening the Volcker rule -- named after White House economic adviser Paul Volcker -- to give regulators less leeway in implementing it and requiring non-bank firms that do risky trading to hold more capital.